November 2, 2012 / 2:18 PM / 5 years ago

US corporate bond issuers rush to market ahead of election

NEW YORK, Nov 2 (IFR) - The US corporate bond market came back with a bang this week after being shut down by the devastating storm Sandy in the US northeast.

Ten investment-grade and five high-yield deals hit the market on Friday, including a US$2.725bn offering from Clear Channel in an unusual burst of activity on the day that non farm payrolls data were announced. That followed ten investment-grade deals that priced on Thursday and ten high-yield deals that were in the market that day as it roared back to life, with issuers racing to get in before next week’s presidential election.

A rallying equity market following the better-than-expected October jobs report provided a positive backdrop. Syndicate desks reported strong pent-up demand from investors, even as many market participants worked remotely or not at all, with transportation systems snarled and vast areas without power.

“Despite the market being shut for the past few days, investor response to the deals today has been very strong,” said Andrew Karp, managing director and head of investment-grade syndicate for the Americas at Bank of America Merrill Lynch on Thursday.

“The breadth of participation is consistent with what we had seen prior to the storm.”

That was evident in the solid book size achieved by most of the high-grade deals. BP Capital Markets’ US$3bn three-part offering attracted a book size of almost US$10bn, while a US$2bn deal from Bank of Montreal garnered about US$7bn.

That encouraged the surge of issuers who emerged on Friday, including rare issuer Microsoft, telecoms giant Verizon and healthcare company Aetna, which announced a US$2 billion deal.

Five of Thursday’s ten high-grade deals were from FIG issuers and all fared well after adopting an empathetic approach to the market.

“We decided to go out with a 15bp new issue concession at the initial price thoughts stage, not because the issuer needed it, but because names like Caterpillar and Black & Decker were doing the same thing, and we didn’t want to stick out like a sore thumb,” said a syndicate manager of one of Thursday’s deals.

Syndicate managers reported a heavy, stressful day of pushing deals out in a limited window, with about half their usual staff -- a situation that was felt from Deutsche Bank’s offices on Wall Street to RBS’ syndicate desk in Stamford, Connecticut, and everywhere else in between.

Citigroup’s DCM desk was working out of a disaster recovery site in New Jersey, while about half of Deutsche Bank’s staff were in their Wall Street office using a generator for electricity, and the other half working elsewhere.

Goldman Sachs was able to work from its downtown offices but also relied on its own generator.

Activity was more limited in the high-yield market but still significant, suggesting investors are still searching for better returns than what’s currently available higher up the credit spectrum.

“The market is up and functioning but clearly it’s not how it was from before the storm,” said one investor in California.

“It doesn’t seem like Sandy is going to have a huge impact on the HY market, except for gaming because of the damage to Atlantic City. People are just trying to await to see what the cost of the storm is going to be.”

Of the issues that priced on Wednesday and Thursday, most were higher in the secondary market with only SOHO China, a property developer, falling below new issue price.

Spectrum Brands was the big winner with its 10-year notes issued at par to yield 6.625% up 3 1/8 points.

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